Thursday, Dec 01, 2022

Universal basic income scheme: Economic Survey to weigh on cost-benefit of UBI

The Survey will seek to initiate the debate around this, even though it is unlikely that the budget for 2017-18 would announce a full scale UBI, a government official said.

The Economic Survey 2016-17 to be presented on January 31 is expected to assess the costs and benefits of launching a Universal Basic Income (UBI) scheme that seeks to provide a minimum income to citizens. While a pure UBI advocates the government guaranteeing a minimum income level for all citizens, irrespective of their income, India, if it were to go ahead with a scheme on these lines, is more likely to tweak the broader concept to target people facing abject poverty.

The Survey will seek to initiate the debate around this, even though it is unlikely that the budget for 2017-18 would announce a full scale UBI, a government official said. Given that India does not have the fiscal wherewithal to provide UBI for the entire population below the poverty line (BPL), the survey on the economy’s report card may detail the benefits of such an experiment in regions facing abject poverty. India had 270 million persons below the poverty line as in 2011-12, as per the latest government data, which comprises 216.5 million rural poor and 52.8 million urban poor.

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A UBI scheme for the entire BPL population would cost the government Rs 3.24 lakh crore annually, assuming a Rs 1,000 monthly income being given to every poor person (totalling about 270 million people). The government would present a cost-benefit analysis on various subsidies being given to the poor, vis-a-vis giving them direct cash transfer in the form of UBI, the official said.

During 2016-17, the Centre has estimated its expenditure on subsidies at Rs 2.5 lakh crore. The largest chunk of Rs 1.34 lakh crore has been estimated as food subsidy for the year, while Rs 70,000 crore is the estimated subsidy for fertilisers. Petroleum products accounted for another Rs 26,947 crore, which include Rs 19,802.79 crore for subsidy on LPG and Rs 7,144.21 crore for kerosene subsidy.

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The government also planned to provide Rs 15,000 crore as interest subvention subsidy for providing short term credit to farmers. These are the main subsidies currently provided by the government. Apart from these subsidies, the government allocated another Rs 38,500 crore for the flagship MGNREGS (Mahatma Gandhi National Employment Guarantee Scheme).

While proponents of UBI argue the government should do away with these subsidies, replacing them with direct cash transfers, critics argue that the government should not withdraw such entitlements to the poor, especially the subsidised food given through Public Distribution System and funds given under the employment guarantee plan.

In July last year, Chief Economic Adviser Arvind Subramanian argued that a basic income scheme can be tried in the most disadvantaged regions of the country, rather than making it universal to start with. Last week, speaking at World Economic Forum in Davos, Niti Aayog CEO Amitabh Kant said the government can try UBI in the form of interest free loan to poor people for a period of 3-4 years, which is repaid and recycled. He said UBI will be important in the context of disruption being caused in the job market through automation, and the government needs to do an in-depth analysis before launching such a scheme.


Among the developed countries, Switzerland had recently rejected a proposal in a referendum to provide UBI, while Finland announced a pilot project for such a scheme. India did a similar pilot in two villages of Madhya Pradesh in 2010. “In the Indian context, a universal basic income has to be examined in the context of the fact that you already have a rural employment guarantee scheme, which is being implemented but has huge leakages. There is public distribution system being implemented, but again is riddled with corruption,” Kant had told CNBC TV18 in Davos.

“You need to think whether it’s a better option to put money directly into bank account of individuals, especially when doing away with MGNREGA and Public Distribution System, and looking at the resources that we are going to generate from taxes and penalties, definitely, I think that is one of the options before the government to think about, that it’s better option to put money directly into the accounts of the poor, what it will do is to spur rural demand,” he said.

First published on: 24-01-2017 at 01:59:39 am
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